The Impact of the US Presidential Election Result

Dun & Bradstreet has held its Country Risk Rating for the US at DB2a following the election of Donald Trump as the next president. We have also reaffirmed our near-term growth forecasts, as the fundamentals of the US economy remain strong enough to absorb the increased uncertainty triggered by the election result; our proprietary micro-level data supports our forecast that the economy is on track to end 2016 with 1.6% growth.

However, we would like to advise our clients that uncertainty will prevail over the next few weeks as businesses, consumers, and policymakers (both in the US and globally) seek to understand how the new president will translate campaign promises into future policy. Dun & Bradstreet is monitoring the evolution of these policies, and will continue to provide data, analytics, and forecasts to help you identify the risks and opportunities under the new government.

With Republican majorities in both the House and the Senate, it is likely to be easier for the new government to enact policies after taking office, although we expect extended discussions on key areas; the extent of Congress’s co-operation will eventually depend on the details of the actual policies proposed and on Trump’s ability to articulate his goals effectively. But the risk of policy gridlock is measurably lower, reducing political risk in the economy.

DOMESTIC IMPLICATIONS

Expansionary fiscal policy is expected to take centre stage under the new president. The US economic expansion of the last few years has been characterised by an over-reliance on monetary policy, and we have been arguing for a more active fiscal policy boost to growth. Infrastructure spending is likely to be one of the biggest and most visible elements of the new government’s fiscal policy. The Trump campaign had proposed an aggressive infrastructure plan in the lead-up to the election. We still need to see more details of how Trump proposes to fund spending on the nation’s highways, bridges and tunnels, and of what that implies for the longer-term budget deficit and public debt burden. Nevertheless, some form of infrastructure spending is a certainty, and the construction vertical will benefit from that.

Tax reform will also be high on the new government’s agenda; the extent and the nature of the reforms, including implications for the Foreign Account Tax Compliance Act (FATCA) are, again, uncertain at this point. However, it is almost guaranteed that the new tax policy will involve a reduction in tax rates for both businesses and individuals to jumpstart spending. This will also be one of the areas in which we expect to see extended discussions in Congress.

Repealing Obamacare, or the Affordable Care Act (ACA), was one of Trump’s high-profile campaign promises. Since his election, however, Trump has toned down his opposition to this legislation, indicating that some parts of Obamacare are likely to survive. Once again, we need more details on which parts of the ACA will be removed and what sort of policies we can expect in their place. A jump in the prices of healthcare stocks was one of the immediate reactions to the news of Trump’s victory, as investors expect less regulation for health insurers. But other sections of the healthcare vertical, like medical devices, could see a negative impact.

Regulation, in general, is expected to wane under the new government. This will be most significant for the financial services vertical, where a reduction in regulations is expected based on the Trump campaign’s opposition to the Dodd-Frank Act. Parts of the Act are expected to be retained, while the government will try to dismantle the rest of the provisions. More clarity is needed on the new rules that will replace the discarded provisions, but equity prices for customers in the financial services vertical are likely to see increases in the near term.

The key point to note is that most of the President-elect’s proposed and expected policy measures are designed to be reflationary, and work on the assumption that they will stimulate demand and inflation in the US economy. Again, the devil is in the details, which will determine how successful these policies eventually are. We advise our customers to be cognizant of the variations in the data below the topline and to adjust their business strategy based on their specific exposure to certain verticals and how they may be impacted by potential policy shifts.

GLOBAL IMPLICATIONS

The Trump administration’s policies will also have significant implications for the global economy. The Trump campaign ran on an anti-globalisation stance, promising to redefine US trade relations with the rest of the world; as such, we expect a more restrictive trade policy under the new regime. Campaign promises included a repeal of the existing North American Free-Trade Agreement (NAFTA) between the US, Canada, and Mexico, and stiff opposition to new multilateral trade agreements like the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (T-TIP). We believe TPP and T-TIP will not go through, as both Congress and the new government will oppose them. The president will likely try to renegotiate the terms of NAFTA, and, if he is unsuccessful in obtaining greater concessions for US exporters, could invoke Article 2205 to leave NAFTA; the president does not require Congressional approval to do so. If the US leaves NAFTA, Canada and Mexico can still be part of it.

The bigger question is over the tone of US trade policy in the next few years, particularly with China. During the campaign Trump promised to impose 45% tariffs on imports from China. However unfeasible such a course of action is in practice, a retaliatory increase in tariffs from China could turn into a trade war that would have adverse impacts on international trade flows and global growth. Moreover, US companies are believed to have invested over USD200bn in China in the past 25 years, potentially making US-owned companies’ supply chains – such as Apple’s –vulnerable to the vagaries of a breakdown in the economic relationship.

Moreover, note that the global impact of the US election result goes far beyond trade relations: significant geopolitical considerations include the new government’s relations with Iran, its policies towards radical Islamist groups such as Islamic State, and its involvement in NATO. Finally, Trump’s success is likely to generate support for the populist leaders who have emerged recently in many European countries. This would reflect a strengthening of a shift towards a more protectionist world, with less support for free trade and globalisation.

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